Wednesday’s Stock Market report featuring United Utilities, Bunzl, Thomas Cook, Britvic and Norcon

The Markets

The Confederation of British Industry expects that this Christmas will be a chilly one for the UK retail sector as profits face a squeeze due to intense competition and tight household budgets. Across the private sector as a whole, sentiment is more positive, with the CBI’s survey of 130 businesses suggesting that many companies are planning on increasing employment and investment over the next three months. However, Barry Williams, Chief Food Merchandising Officer at Asda, said that, “with prices under pressure and more firms adopting US-style Black Friday offers, retailers are expecting a festive boost next month and are certainly doing their best to put smiles on customers’faces and make it easy on their pockets”.

The price of oil has fallen once again ahead of the meeting of the Organisation of the Petroleum Exporting Countries (OPEC) tomorrow, with the price of Brent Crude dropping a further 0.8% this morning. There is dissent within the cartel as to how falling prices should be handled, with Venezuela and Iraq pushing for output to be cut to drive up prices, which have dropped by 30% since June. Indications suggest that Saudi Arabia, Russia and the United Arab Emirates would oppose such a move, with the UAE Oil Minister Suhail bin Mohammed al-Mazroui commenting that, “the market will fix itself ultimately”.

At the London close the Dow Jones had decreased by 5.23 points to 17,809.71 and the Nasdaq had grown by 17.72 points to 4,305.95.

In London the FTSE 100 closed down by 1.97 points at 6,729.17 and the FTSE 250 fell by 43.12 points to 15,788.43. The FTSE All-Share decreased by 2.29 points to 3,593.62 while the FTSE AIM Index shrank by 1.39 points to 728.45.

Broker Notes

Westhouse Securities has rated Amlin (AML) as a “buy” after the reinsurance firm provided further details on its move to increase its holding Leadenhall Capital Partners from 40% to 75%, for a consideration of $29.1 million dollars (18.4 million pounds). The broker believes that the plan benefits Amlin financially, adding substantially to assets under management, and can help the firm remain near the forefront of the industry. The shares fell by 0.9p to 436.2p.

Shore Capital has downgraded Bunzl (BNZL) to a “hold” rating with a target price of 1,770p due to the firm’s strong recent performance having met all of the broker’s expectations. Shore believes that the company will continue to perform well across its verticals, but thinks that it has now reached a price reflective of its true value, even taking into account the improved outlook for next year and potential new acquisitions. The shares fell by 11p to 1,759p.

Numis Securities has reduced its rating on Renew Holdings (RNWH) from “buy” to “add” after sustained outperformance of its peers has caused the firm’s share price to soar. The broker maintains a positive view of the stock and Renew’s future development but the recent strength of the engineering services division has meant that the company has exceeded expectations relative to other firms in the sector. Numis feels that the share price, which today moved downwards by 9.5p to 283.5p, reflects this.

Broker expects renewed growth

Blue Chips.

Water giant United Utilities (UU.) saw revenues for the six months ended 30th September rise by 1.6% to 859.4 million pounds, which has lead the firm to announce an interim dividend of 12.56 pence per share for the period. Management have announced 280 million pounds of new investment that will be funded by the recent outperformance. The board believe that this programme will bring the company closer to achieving long-term targets and sustained dividend growth. The shares dropped by 6p to 908.5p.

Plumbing supplies outfit Wolseley (WOS) grew sales for the three months to 31st October by 5.2% to 3.5 billion pounds, with the improvement being driven by a string performance in US and UK markets. The United States now contributes 55% of revenues, with regional sales rising by over 10% during the period. Management expect that full year results will be in line with expectations. Shares in the company fell by 33p to 3,531p.

Catering firm Compass (CPG) struggled with the strength of sterling during the year ended 30th September, but still delivered 4.1% revenue growth, driven by new contract wins and good business retention rates. Conditions in Europe and Japan continued to improve, with margins rising by 40 basis points. Management have increased full year dividends by 10.5% to 26.5p per share. Shore Capital and Numis Securities reiterated “hold” ratings on the stock, which declined by 14p to 1,060p.

Compass on course, despite currency complications

Mid Caps

Full year revenues for the 12 months ended 30th September fell by 8% to 8.5 billion pounds at holiday operator Thomas Cook (TCG). This was due to foreign exchange movements, unit disposals and lower demand for Egyptian holidays. However, underlying EBIT for 2014 on a like-for-like basis was up by 44% at 323 million pounds. Despite the rise in profits Thomas Cook shares sank by 24.4p to 113.5p after the markets focussed on the news that CEO Harriet Green has stepped down and been replaced by Chief Operating Officer, Peter Fankhauser, with immediate effect. The two years of Green’s reign saw the shares rise almost tenfold, from a low of 14p.

Property company Daejan Holdings (DJAN) increased pre-tax profits for the six months to 30th September to 134.5 million pounds from 76.5 million pounds for the same period in the prior year. This came due to a net valuation gain on the firm’s UK and US property portfolios in excess of 60 million pounds. Rental incomes also grew, from 56 million pounds to 66 million over the course of the year. The shares rose by 145p to 5,125p.

Soft drinks firm Britvic (BVIC) saw profits before taxation rise by 22.9% to 132.9 million over the year ended 28th September as it made targeted efforts to improve its operating margins, including the closure of four UK facilities. Management expect further growth during the coming year as Britvic launches its Fruit Shoot products in the United States and expands production capacity by investing in a new high speed bottling line. The shares declined by 41.5p to 655p.

Britvic deliver something sweet, but market not convinced

Small Caps

Shares in Security Research Group (SRG) dropped precipitously after management announced plans to de-list from the AIM market. After a strategic review of the business, it has been concluded that the best course of action for shareholders is to dispose of the firm’s three operating business and return capital to shareholders. The shares plummeted by 17.5p to 42.5p.

Shares in enterprise software developer K3 Business Technology (KBT) edged up by 0.5p to 221.5p after saying at its AGM that trading in the new financial year to date has been in line with expectations. Demand for the firm’s new flagship Microsoft Dynamics “ax|is” solution is said to be “encouraging” and its recent accreditation of membership of Microsoft’s Global Independent Software Vendor programme highlights the product’s global potential. As in previous years, cash generation in the first half will benefit from SYSPRO licence and support contract renewals, and the company’s net debt position at 31st December 2014 is expected to be in line with management expectations, tracking normal seasonal patterns.

Exploration outfit Kalimantan Gold Corporation (KMG) has reached an agreement to purchase a 40% stake in the Indonesian Beutong Copper-Gold Project from Tiger Realm Copper. The deal is share based and Tigers will also provide Kalimantan with an interest free loan to provide working capital during the due diligence period. Management believe that this asset compliments the firm’s existing holding and will help the company establish a strong prospective portfolio near major markets. The shares grew by 0.55p to 2.35p.

Housebuilder Telford Homes (TEF) has hinted at positive future results, saying that its London-centered development pipeline has a value in excess of 1 billion pounds. Completions dropped in the six months ended 30th September due to the timing of projects, but costs also fell and stronger margins meant that profits rose to 9.4 million pounds before tax despite a drop in top-line revenues. The shares rose by 5.25p to 364.75p.

Outsourcing specialist Norcon (NCON) has seen its performance improve in the second half of the year and is trading in line with management expectations for the current period. Margins have strengthened and the board now believe that the full year target of revenues around 5% below those for 2013 and flat pre-tax earning will be met. This decline is due to a number of delayed projects. The shares ended the day flat at 19.75p.

Profits for the six months ended 30th September fell by more than 66% to 1.5 million pounds at onshore hydrocarbon producer Igas (IGAS). This was due to a non-recurring foreign exchange gain during the comparable period of 2013 and the negative effects of the strong pound on trading. The company has protected itself so far from recent price volatility via a hedging arrangement covering 517 barrels of oil at a blended rate of $87.7 (55.5 pounds) per barrel. Igas shares rose by 1.75p to 58p.

Igas plans to weather oil price storm